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Daily Market Update

by Jamie Henry on 26 Nov 2014
Interest rate rise in May 2015? The OECD believes so
Interest rates in Canada will increase in May 2015 and rise steadily thereafter. That’s the forecast of the Organization for Economic Co-operation and Development which would mean rises 6 months before most economists are predicting. It’s based on concerns over inflation, which is currently running above the Bank of Canada’s 2 per cent target. OECD says that the central bank’s policy of holding back due to ‘slack’ in some areas of the economy will have to be scaled back with rate rises as the slack recedes. While any initial rise may be small some experts are expecting a greater demand for fixed-rate mortgages in the coming months.
 
Forecasters predict housing slowdown in 2015 but still fear crash
A poll of forecasters by Reuters shows a consensus that next year will see a slowdown in housing construction and prices but are still fearful of a market crash. Most of the 23 forecasters polled believe that house prices are higher than they should be. Nine say there is a higher risk of a crash than a year ago, the same number say the risk is the same, while 5 say it is lower. The analysts expect a price rise of 5.2 per cent in 2014, slowing to 2 per cent in 2015 and 2016; roughly in line with inflation. Housing starts are predicted to reduce to 181,000 in Q4 2015 compared to 190,000 in the last three months of this year. The household debt-to-income ratio is a concern for around half of the forecasters.
 
Is fracking good news for the housing sector?
While some may not like the idea of living in an area where fracking is taking place, the boom in the practice could lead to extra housing demand. Fracking is highly divisive with environmental groups opposed to it but energy firms and their investors very much in favour! In the US it has helped the energy sector overtake Saudi Arabia in production of oil and Canada’s fracking industry is gathering pace. In Saskatchewan there has been an uptick in activity. Towns like Kindersley have found that the fracking industry’s need for water has given them a market for the municipality’s treated wastewater. The province is seeing increased population growth over the last few years as fracking has given legacy oilfields a new purpose.
 
US house price growth higher than a year ago but slowing
The latest figures on house prices south of the border show a decline in growth. The S&P Case-Shiller Index reveals that prices increased in September from a year earlier by 4.9 per cent; higher than the predicted 4.6 per cent. The month-over-month increase was 0.3 per cent, again higher than the prediction of 0.1 per cent. The overall trend is that the growth is slowing despite the uptick in the US economy. 



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